India's current account deficit is expected to be around 1.7 per cent of GDP in this financial year, largely owing to higher oil prices, says a report.
With the December quarter current account deficit worsening to 2 per cent of GDP, Bank of America Merrill Lynch (BofAML) raised its current account deficit (CAD) forecast for this financial year and for the next fiscal.
The global financial services major has raised its CAD forecast by 10 bps to 1.7 per cent of GDP in 2017-18 and by 20 bps to 1.9 per cent of GDP in 2018-19.
According to data released by the Reserve Bank on Friday, the CAD rose to 2 per cent of the GDP at USD 13.5 billion in the December quarter, up from USD 8 billion or 1.4 per cent in the year-ago period, on the back of higher trade deficit.
On a cumulative basis, CAD more than doubled to 1.9 per cent of GDP in the April-December 2017 period.
"Looking ahead, we see three pressures on India's balance of payments: higher oil prices will stick the current account deficit at a relatively higher level; FPI equity flows in equities should remain tepid given high equity market valuations; and flows ?to the Chinese market will likely pick up with A shares entering the MSCI," the report said.
The report further noted that the trade deficit has improved to USD 12 billion in February from USD 16.3 billion in January. "This should contain the March quarter CAD to USD 7 billion," it added.